Cryptocurrencies are fundamentally peer-to-peer currencies recorded and encrypted through the medium of blockchain technology. In the last couple of years, attention has shifted away from the fundamental purpose behind the creation of cryptocurrencies. The fact that Bitcoin and other cryptocurrencies are recording massive price gains is causing people to think of cryptocurrencies as assets instead of seeingthemas a means of transferring value.
Cryptocurrencies are simply digital currencies created to run independent of a central bank or a similar monetary authority. The independent nature of cryptocurrencies suggest that they are not subject to monetary policies of a central bank. Cryptocurrencies are immune from inflation because the supply can’t be diluted by ‘minting’ more coins.
Traditional money transfers nowadays are used to remit fiat currencies across bordersbut such transactions are subject to processing fees and the volatility of exchanges rates. A cryptocurrency is however uniform across borders; hence you don’t have to worry about FX rates. Below are four ways cryptocurrency can disrupt the global money transfer industry.
How can cryptocurrencies change the face of money transfer?
One of the biggest advantage of cryptocurrencies over legacy financial systems as a tool for money transfer is speed. When you send money through legacy systems such as Western Union, you’ll have the option of making a same-day transfer, which takes at least 30 minutes. A regular transfer will take between 2-3 business days to move from you to the recipient. The worst part is that the recipient has to go stand in line at a bank/agent location, fill out tons of forms, and then wait to be paid in the local current minus an FX fee.
With cryptocurrency, money transfers can be initiated in near-instant time in a matter of seconds. You don’t need to go to a bank and fill out long KYC forms because all you need to do is to open an app on your phone. More so, recipients don’t have to stand in line because the funds will be deposited directly in their wallets.
Another reason cryptocurrencies are on track to displace legacy financial systems for money transfers is the reliability that they provide. When you transfer money through legacy financial systems, you are practically riding on the archaic technology of your financial institution. Sometimes, payments sent from credit cards take a while to be processed or are flagged as suspicious. In some instances, the banking network is simply out of commission and recipients have to wait for the service to come back online.
The decentralized nature of blockchain technology ensures that the payment instruction and transfer of value is distributed; hence, you don’t have to worry about incomplete or lost money transfers.
· Low cost
The traditional financial industry currently enjoys a near-monopoly of the money transfer industry. You don’t have much choice for money transfers than to use your bank or one of the new generation money transfer companies. Packing money in a suitcase and sending it by air fright is not a feasible solution. The near-monopoly of traditional financial institutions in turn emboldens them to charge high fees to process money transfers. Of course, the overhead costs of traditional financial institution isone of the reasons they charge high fees. In parts of the developed world, a money transfer can cost between 5 to 10% of the total transfer value – money transfer to some parts of Africa can cost as much as 20% in fees.
With cryptocurrency, fees are practically negligible because you are not paying a centralized third-party to transmit your transaction. Cryptocurrency enables you make actual transfer of value as opposed to fiat currencies where you instruct a bank to send money to a recipient. Of course, you’ll still need to pay a fee for your cryptocurrency transaction to be recorded on the blockchain; however, the fees are usually small in relation to the costs of traditional money transfers.
Challenges that might delay the adoption of crypto for money transfer
Despite all the aforementioned benefits of cryptocurrency transfers in relation to legacy financial systems, crypto are still a long way off from taking over the market. To begin with, there’s a huge information gap between the cryptocurrency industry and the end users. Many people misunderstand cryptocurrencies such as Bitcoin by thinking it’s a way to get rich quickly or a strange asset that is best ignored.
Secondly, the cryptocurrency industry remains largely fragmented with more than 1,300 cryptocurrencies created to meet overlapping market needs. The bigger problem however is that there’s a lack of interoperability among the different blockchains. Hence, people still need to open multiple wallets for different kinds of cryptocurrencies.